Mining companies, including Rio Tinto Group (RIO) and Vale SA, are increasingly looking for ore bodies in regions with high political and security risk as they struggle to meet commodities demand, a risk consultant said.
“The mining industry is actually an industry in crisis,” Michael Humphreys, managing director at strategic consultancy Control Risks in Sydney, said in an interview. “There’s this concern about getting their hands on leases - if you’re an exploration geologist, all the good sites have been pegged.”
Mining companies are searching for copper, iron ore and coal projects in Africa and Asia to help meet demand from China and India, the two fastest-growing major economies. The number of resource projects in development globally have more than doubled from just under 500 at the end of 2009 to nearly 1,100 at the end of last year, Humphreys said.
“If you’re an exploration geologist, you’re going offshore to Africa,” Humphreys said yesterday. “We’re also seeing some go to central Asia.”
Political risk worsened during 2011 in West African countries including Ivory Coast, Burkina Faso and Mauritania, he said.
“When elections are on, foreign mining companies are an easy target for populist pledges,” Humphreys said. “If you understand there’s an election in one to two years time, you can start to work with these guys beforehand so you can contain and manage the expectations.”
Canada’s First Quantum Minerals Ltd. (FM) lost its license to the $750 million Kolwezi copper project in Democratic Republic of Congo in 2009, after a review of mining contracts in the central African nation, while Rio Tinto lost part of its Simandou iron ore lease in Guinea after a 2008 military coup.
“Many of these projects are moving through to production, which is the high-visibility, high-impact stage,” said Humphreys. This “is causing them to have to interact with communities and governments. It’s human nature there’ll be a lot of robust discussion and we’re going to see more tension across the resource sector,” he said.
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